Mon Feb 27 11:06:42 EAT 2017

Miners regain sparkle as prices pick up

Increased Chinese spending on housing and hopes of an infrastructure bonanza in the US and India are driving a recovery in resources giants, analysts said, with major miners raking in huge profits.

In Summary

A slowdown in the global economy, particularly in the world’s top consumer China, and a supply glut hammered prices in recent years, pushing many firms to the brink of collapse and forcing others to slash jobs and spending.

But with Beijing rediscovering its appetite for key metals -- and the economy showing signs of stabilising -- optimism is returning, although there are lingering worries the recovery might not last.

Sydney. Increased Chinese spending on housing and hopes of an infrastructure bonanza in the US and India are driving a recovery in resources giants, analysts said, with major miners raking in huge profits.

A slowdown in the global economy, particularly in the world’s top consumer China, and a supply glut hammered prices in recent years, pushing many firms to the brink of collapse and forcing others to slash jobs and spending.

But with Beijing rediscovering its appetite for key metals -- and the economy showing signs of stabilising -- optimism is returning, although there are lingering worries the recovery might not last.

“Most miners are going to be making very good cash, and better cash than they have been making for years,” UBS commodities analyst Daniel Morgan told AFP.

“Their cost bases are lower and in many cases they are back to sustaining capex (capital expenditure) rather than growing capex. So right now they’ll be minting cash and improving their balance sheets.”

Iron ore, a key ingredient in steelmaking, has been representative of the commodities rollercoaster.

After hitting a peak near US$200 a tonne in 2011, it tumbled some 80 per cent to below US$40 in late 2015. Since then, it has rallied to spike above US$90 in February, surprising analysts.

Copper prices have also rallied, with a strike at BHP’s Escondida mine in Chile -- the world’s biggest copper pit -- also providing support.

The main factors behind the broad-based revival have been supply constraints and a shift in Chinese demand, said CLSA’s head of resources research Andrew Driscoll.

“Demand was persistently better than what was expected, led by those two sub-sectors, for much of the year,” Driscoll told AFP.

At the same time, supply constraints emerged as the central government enacted environmental reforms that made it more costly to produce polluting commodities in China.

Back in business

The world’s two biggest miners -- BHP Billiton and Rio Tinto -- this month reported bumper profits for 2016 after plunging into the red the previous year and Brazil’s Vale also said Thursday it experienced a strong earnings boost on the back of record production.

Coal giant Anglo American joined the party Tuesday, powering back into the black, while the surge in coal prices has led to the reopening of mines by operators including Swiss commodities giant Glencore. (AFP)